Back in February, billionaire George Soros called on the European Union’s leaders to prepare for Ukraine an aid plan similar to the Marshall Plan that the United States launched to support European countries after World War II.
Soros said at the time that Germany should lead the preparation and implementation of this plan. "Today, Ukraine needs a modern-day equivalent of the Marshall Plan, by which the United States helped to reconstruct Europe after World War II. Germany ought to play the same role today as the US did then," Soros said.
However, it seems that Soros’ call has not yet struck a chord in the hearts of German Chancellor Angela Merkel and other European leaders. In October, Anders Aslund, a senior fellow at the Peterson Institute for International Economics, tried again to justify the need for such a plan through an article published in The Financial Times. He was supported in Lithuania. In mid-November this year, the Lithuanian parliament’s committees on foreign and European affairs adopted a resolution calling for initiation of a debate on a six-year financial assistance to Ukraine in the amount of EUR 30 billion at the level of the European Union.
In response, the European Commission said it was organizing an international conference on assistance to Ukraine, but only in early 2015. German Foreign Minister Frank-Walter Steinmeier said that the decision to hold a donor conference for Ukraine was supported by all foreign ministers during a meeting of the foreign ministers of the European Union on 17 November. One of the key issues at this conference was to be the issue of financial assistance for infrastructure projects in the liberated areas of the Donbass.
A lot will depend on how the European Union perceives this financial assistance. If it perceives it as a commercial project, then the chances of providing it in amounts necessary for a sharp modernization spurt in Ukraine are minimal. If it perceives it as its mission to promote peace in Eastern Europe and reduce social tensions on its borders, even the amount of EUR 30 billion is quite realistic. For comparison, Poland will spend more than EUR 14 billion in European Union funds on construction and repair of its roads alone in the period of 2014-2020 without a bombastic Marshall Plan.
What we have right now Financial institutions such as the European Bank for Reconstruction and Development (EBRD) and European Investment Bank (EIB) already play a huge role in Western support for infrastructure projects in Ukraine. Ukraine has been cooperating with them for many years, and they provide credits to both private businesses and public projects. In the latter case, they provide money under state guarantee. They provide funds mainly for road construction, railway projects, and the port industry, particularly construction of grain transshipment terminals. According to the plans that they have already announced, the banks plan to continue providing credits to Ukraine, but there is currently not talk of increasing their volumes of lending to the country.
There are certain obstacles to increase of EBRD loans for infrastructure projects in Ukraine
According to data from the Ministry of Economy, implementation of transport projects such as the following with Western money has already begun: in 2013, "Introduction of high-speed passenger trains" (EUR 85 million from the EBRD), repair of Kiev approach roads (EUR 450 million from the EBRD, EUR 450 million in co-financing from the EIB), and a project for completing construction of the subway in Dnipropetrovsk (EUR 152 million from the EBRD, EUR 152 million in co-financing from the EIB). This year, an investment project involving extension of the third subway station in Kharkov (EUR 154 million from the EBRD, EUR 154 million in co-financing from the EIB) is in the preparatory phase while construction of the Beskyd tunnel (EUR 40 million from the EBRD, EUR 55 million in co-financing from the EIB) has begun.
According to the plans that have already been announced, the EBRD and the EIB intend to maintain the levels of their loans for development of infrastructure projects in Ukraine. The EBRD annually invests about EUR 1 billion in the Ukrainian economy. According to EBRD representative Anton Usov, the bank is willing to maintain this pace of investment in the future if conditions are favorable. However, according to him, there are certain obstacles to increased lending for infrastructure projects in Ukraine. "Government and municipal borrowing are conditioned by the capabilities of the respective budgets. In the private sector, the investment climate in the country and project risks are important," said Usov.
Another area into which the West has poured money this year is the port industry. Faced with the prospect of increasing grain exports, many companies have announced the start of construction of transshipment facilities in ports. It will be necessary to increase the capacities of grain terminals if export volumes increase.
One of the projects that have succeeded in attracting foreign funding is the Brooklyn-Kiev company’s grain transshipment terminal at the Odessa port. The terminal has a capacity of 4 million tons and costs a total of USD 100 million. The EBRD lent USD 60 million for its construction this summer, as Brooklyn-Kiev’s head Yurii Hubankov himself told the CFTS. The project is being implemented jointly with the Louis Dreyfus company. All the phases of its construction are scheduled to be completed in the period of February-March 2015 if there are no unforeseen delays.
Plans for the year The EBRD is preparing the following projects for 2015: a project for electrification and improvement of efficiency of the State Railway Administration (Ukrzaliznytsia), a project for construction of new grain terminals at seaports, and a project for development of urban transport. In addition, the bank is considering the possibility of providing funds for rehabilitation of infrastructure in the Donbass. However, according to Usov, first step here is preparation of specific project proposals by the government of Ukraine and the relevant local authorities.
The EIB may also provide Ukraine EUR 200 million for priority rehabilitation of infrastructure in the Donbass. According to information on the bank's website, “the objective objective of the early recovery phase is to address the short-term needs in the affected areas under the control of the government of Ukraine and basic infrastructure needs to shelter internally displaced people in other regions of Ukraine.” However, the project is still under appraisal.
Kiev can also count on money from the West. Recently, the Kyiv municipal administration and the Kievpasstrans public transport utility signed an agreement with ZGD TOR, a Polish group of economic consultants, on assistance in obtaining EUR 150 million from the European Union for financing modernization of transport infrastructure. These funds are intended for modernization of public transport, transport infrastructure, and IT systems, as well as for consulting services. However, according to Oleksandr Kava, an adviser to the head of the Kiev municipal administration, this is only a memorandum and it is too early to talk about a date for provision of the funds.
ZDG TOR is also working with Ukrzaliznytsia, for which it has prepared an assistance program worth about EUR 250 million (for modernization of infrastructure and rolling stock). This company is expected to help Ukraine obtain European financial assistance.
Also planned for 2015 is a project for road safety improvements on the M01 and M05 corridor (EUR 150 million from the EBRD and expected co-financing from the EIB). In addition, the EIB promises to consider and conclude an agreement on the financing such projects in 2015: modernization of municipal infrastructure (EUR 400 million from the EIB), electrification of 500 kilometers of railway tracks on the Southeastern Railway, reconstruction of 84 kilometers of the Lvov-Krakovets road, and a project for purchase of freight cars (without state guarantee).
See also "Interview with EBRD Senior Banker Mark Magaletsky"
